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David H. Schwartz Oct. 20, 2021

If you file suit against someone for $100,000 and win, but your attorney’s fees total $45,000, can you get the losing party to cover those expenses?

The answer in California, as in almost every jurisdiction, is no, but there are a few exceptions that may allow you to recover your attorney’s fees.

If you’re contemplating filing a lawsuit or have been sued yourself, you need to consider every aspect, including attorney fees, before deciding on the courtroom or the settlement process. If you’re in or around San Francisco, or nearby in San Jose, Santa Clara, San Mateo, Oakland, or Alameda County, contact the Law Offices of David H. Schwartz, INC. 

Attorney David Schwartz has been involved in every aspect of civil litigation, representing both plaintiffs and defendants, for 45-plus years. He will listen to your upcoming or current case, advise you of your best options going forward, and represent you vigorously if need be.

The American Rule

California follows the “American Rule” when it comes to attorney’s fees. This means that both parties in a lawsuit are responsible for paying their own attorney’s bills.

The American Rule in California is codified in the California Code of Civil Procedure § 1021: “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to their costs, as hereinafter provided.”

Critics of the American Rule have long pointed out that it leads to frivolous lawsuits. Faced with a bogus claim, a person or entity has to decide whether it’s worth the cost in an attorney's hourly billings to defeat the other party or just throw in the towel and make a settlement.

Exceptions to the American Rule

California Civil Code Section 1717 allows for the collection of attorney’s fees if there is a clause in a contract specifying such a provision. The provision, however, cannot be “one-sided,” meaning both the plaintiff and defendant should be able to recover attorney’s fees if they win.

Section 1717(a) provides, in “an action on contract … the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”      

Enforcing the provision in court, however, depends largely on the wording in the contract. It cannot simply, for instance, call for “reimbursement of expenses incurred in any legal action,” but must specify attorney’s fees.

When a Third Party Causes You to Sue

Another exception is called the “Tort of Another” doctrine, which covers cases in which one party sues a third party because of the wrongful or negligent action of another party. This is also sometimes called “implied indemnity.”

The Tort of Another exception has been defined by the California Supreme Court as: “A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney’s fees, and other expenditures thereby suffered or incurred.”

The Tort of Another doctrine is often used in real estate transactions. An escrow company or real estate agent might be held liable for their actions or inactions in causing, for instance, a buyer to sue a seller. In other words, a tort – or a civil as opposed to a criminal wrong – by a third party caused the lawsuit.

The Tort of Another doctrine does not apply only to real estate transactions, but it does have somewhat limited applicability. The doctrine, however, can prove useful as a bargaining chip in the run-up to a lawsuit.

Statutory Exceptions

There are other statutory exceptions to the American Rule, including “bad faith” tactics by insurance companies and government contracts of more than $25,000. If your insurer denies your valid claim and you sue to collect a proper settlement, the lawsuit can also seek attorney’s fees and punitive damages. 

A government contract of more than $25,000 must file a payment bond. If you file an action over nonpayment or underpayment, you can file for both payment and attorney’s fees.

Working With Skilled Legal Counsel

The Law Offices of David H. Schwartz, INC. works with both plaintiffs and defendants. If you’re facing or contemplating a lawsuit and want to better understand the American Rule and its exceptions, reach out today. 

Attorney David Schwartz has been proudly serving clients for nearly five decades in the San Francisco area and nearby, throughout Alameda County, and the cities of Oakland, San Jose, Santa Clara, San Mateo, and neighboring communities.